Investing in Insurtech Start-ups | Philippines | Asia Pacific Insurance

Are there any limitations or criteria on the type of start-up that an insurer can invest in? Does the start-up need to be registered with any authority?

Subject to the conditions provided by the Insurance Code, an insurance company may purchase, hold and own the following:

Real properties that serve as the main place of business and/or branch office
Bonds or other instruments of indebtedness of the Philippine government or its political subdivisions
Bonds or other instruments of debt of government-owned or government-controlled corporations
Bonds, debentures or other instruments of indebtedness of any solvent corporation or institution created or existing under Philippine laws
Common, preferred or guaranteed stocks of any solvent corporation or institution created or existing under Philippine laws
Securities issued by a registered enterprise under the Omnibus Investments Code
Certificates, notes and other obligations issued by the trustees or receivers of any institution created or existing under Philippine laws, which, or the assets of which, are being administered under the direction of any court
Equipment trust obligations or certificates that are adequately secured or other adequately secured instruments evidencing an interest in equipment wholly or in part within the Philippines
Any obligation of any corporation or institution created or existing under Philippine laws that is adequately secured and has qualities and characteristics wherein the speculative elements are not predominant
Other securities as may be approved by the Insurance Commissioner

An insurer is not allowed to have equity in an adjustment company.

What are the available options in terms of investments that an insurer can make in an insurtech start-up?

An insurer may invest in an insurtech start-up in the form of equity investment or granting of loan.

What are the restrictions on investing in an onshore insurtech start-up?

Investment in an onshore insurtech start-up is subject to the general restriction that the total investment must not exceed 20% of the net worth of the insurer or 20% of the paid-up capital of the insurtech start-up.

What are the restrictions on investing in an offshore insurtech start-up? Is approval required from the regulators?

Investment in an offshore insurtech start-up is subject to the general restriction that the total investment must not exceed 20% of the net worth of the insurer or 20% of the paid-up capital of the insurtech start-up.

Investment in an offshore insurtech start-up is subject to the approval of the Insurance Commissioner. The approval process generally takes 30 working days from the submission of complete requirements.

Is an insurer permitted to grant loans to an insurtech start-up? Under what conditions?

Subject to the restrictions imposed by the Insurance Code, an insurer is allowed to grant loans to an insurtech start-up, provided that such loans are secured by any of the following:

First mortgages or deeds of trust of registered, unencumbered, improved or unimproved real estate
First mortgages or deeds of trust of actually cultivated, improved and unencumbered agricultural property in the Philippines
Purchase money mortgages, lease purchase agreements or similar securities executed or received by it on account of the sale or exchange of real property acquired pursuant to the Insurance Code
Bonds or other instruments of indebtedness issued or guaranteed by the Philippine government or its political subdivisions, or government-owned or -controlled corporations and instrumentalities
Obligations issued or guaranteed by registered universal banks, commercial banks, offshore banking units, investment houses or other financial intermediaries
Obligations issued or guaranteed by foreign banks or corporations with a net worth of at least USD 150 million or as may be prescribed by the Insurance Commission
Assignments of monetary instruments such as cash deposits, deposit certificates or other similar instruments of registered universal banks, commercial banks, investment houses or other financial intermediaries
Pledges of shares of stock, bonds or other instruments of indebtedness specified in the Insurance Code
Chattel mortgages over equipment not more than three years old
Such other security as may be approved by the Insurance Commissioner

What type of corporate approvals is required for an insurer to invest in an insurtech start-up?

Subject to the restrictions/limitations imposed by the Insurance Code and provided that the Articles of Incorporation (AOI) of the insurer does not expressly prohibit the same, a domestic insurer may invest in another corporation and enter into credit transactions with third parties upon the approval of the majority of its board of directors. Under the Corporation Code, an insurer may also invest its funds in another corporation or business or for any other purpose other than the primary purpose as stated in its AOI when approved by a majority of the board and ratified by the stockholders representing at least two-thirds of the outstanding capital stock.

Are there any general minority shareholder protection mechanisms in your jurisdiction?

All stockholders may exercise their appraisal right or their right to withdraw from the corporation, and demand payment of the fair value of their share, after dissenting from corporate acts involving fundamental changes in corporate structure, such as:

Amendment to the AOI to the effect of changing or restricting the rights of any stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence
The investment of corporate funds in another corporation or business or for other purposes than those stated in the AOI
In case of a sale or disposition of all or substantially all assets of the corporation
Mergers or consolidations

Are there any restrictions on the insurer in terms of appointing its own staff or management to join the insurtech start-up's board of directors or management team?

There is none. Generally, however, directors should avoid situations that would give rise to a conflict of interest.

Are there any restrictions on entering into a service contract with the insurtech start-up upon completion of the investment? (a) Any connected party transaction restrictions? (b) Any prerequisite approvals required from the regulators or from internal committees?

The following rules apply to connected party transactions:
- Overlapping interests in the insurance entity must be disclosed to the board and any material transaction involving such interests must be similarly disclosed.
- Related-party transactions must be conducted in terms that are at least comparable to normal commercial practices to safeguard the best interest of the insurance corporation, its policyholders, creditors and claimants.
- Related-party transactions should be disclosed fully to the board. Prior board approval must be obtained for related-party transactions that are material in nature.

In general, the board of directors must approve corporate polices in core areas of operations, specifically underwriting, investments, reinsurance and claims management. If the service contract with the insurtech start-up involves the insurer's core operations, then board approval is necessary.

Are there any regulatory requirements on the disclosure of the transactions and connected transactions thereafter between the insurer and the insurtech start-up?

Yes, insurer companies are required to adequately disclose their related party transactions in their annual reports and comply with certain related party transaction reporting requirements.

To what extent can the insurer provide operational support to the insurtech start-up?

There are no limits under current insurance regulations regarding the extent to which an insurer can provide operational support to the insurtech start-up. However, the board must oversee the conduct of the company’s business to ensure that the business is being properly managed. The board must also identify principal business risks and ensure the implementation of appropriate risk management systems to specifically manage the underwriting, reinsurance, investment, financial and operational risks of the company.

What type of remuneration is permitted for the insurer to offer to the insurtech start-up?

The type of remuneration is not prescribed. However, the payment or remuneration to an insurtech company must not adversely affect the performance and financial condition of the insurer (including underwriting risk, reinsurance risks, investment risk, geographical risk, operational risk and legal risk).

How can the insurtech start-up transfer the intellectual property rights for its

Under Philippine law, intellectual property rights may be sold, assigned or licensed from one entity to another. Assignment/transfer of patents must be in writing, notarized and must be recorded with the Intellectual Property Office of the Philippines (IPO). Assignment/transfer of trademarks and copyright need to be in writing and recorded with the competent registrar; it need not be notarized, but it is preferred.

Contract or agreements involving the transfer of intellectual property rights are known as Technology Transfer Arrangements (TTA). Republic Act 8293 enumerates certain prohibited clauses that should not be in the TTA. It also enumerates mandatory provisions that must be in the TTA. TTAs conforming to the requirements do not need to be registered with the IPO. However, noncompliance with these requirements renders a TTA unenforceable, unless it is approved and registered with the proper bureau of the IPO.

Are there any laws governing the collection, usage, storage, disclosure and transfer of personal data between the insurer and the insurtech start-up?

The Data Privacy Act of 2012 (DPA) and its Implementing Rules and Regulations (DPA-IRR) govern the processing (which includes collection usage, storage, disclosure, and transfer) of data from the data subject to a personal information controller (PIC), from a PIC to a personal information processor (PIP), and from one entity to another.

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